The Pound has reacted negatively this morning to the revised UK GDP figures. Many analysts were hopeful that the disappointing UK GDP data numbers released at the end of January would be revised higher. However, the new data showed that the UK economy contracted by -0.6% in the final quarter of 2010 compared to the previous estimate of -0.5%.
Despite recent signs that the Bank of England Monetary policy Committee were shifting towards a hike in interest rates the highly disappointing data may mean a rise in interest rates may not come as soon as previously thought.
Currently the Pound trades in the region of 1.60 against the US Dollar and at 1.16 against the Euro.
Sterling has appreciated modestly this morning following the release of February’s Monetary Policy Committee (MPC) minutes by the Bank of England showing that interest rates were kept on hold by a 6-3 vote.
Bank of England chief economist Spencer Dale joined Andrew Sentance and Martin Weale in backing a rise in interest rates. Dale and Weale both voted for a 0.25% rate hike whilst Sentance strengthened his call for an interest rate hike from the Bank by voting for a 0.50% rate hike.
The remaining six MPC members voted to keep rates on hold. All members of the MPC with the exception of Adam Posen voted to keep the Bank’s Quantitative Easing (QE) programme on hold, whilst Posen voted for a further expansion in QE of £50 billion.
Whilst the Bank of England is clearly divided, the case for increasing interest rates is strengthening. The expectation of future rate hikes should help underpin Sterling’s value.
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This week has seen a number of better than expected pieces of UK economic data. The Purchasing Manager Index data released this week by Markit Economics has shown a better than expected expansion in the UK manufacturing, construction and service sectors. This data has eased concerns relating to the sustainability of the UK economic recovery and gives weight towards the prospect of an interest rate hike from the Bank of England later this year.
Elsewhere, the European Central Bank (ECB) continued to hold its interest rate at 1% and in the following press conference, ECB President Trichet was less hawkish than many analysts had expected, signalling that despite recent price rises he believed the current rate was appropriate. Any interest rate rise from the ECB in the near term now seems rather unlikely.
As a result the Pound has appreciated to 1.18 against the Euro and remains above 1.60 against the US Dollar.
The exchange rates mentioned in the above blog are based on the current interbank rate. The exchange rate you are able to achieve will depend on the amount of currency being purchased. Please do not hesitate to contact the dealing team on +44 (0) 1695 581 669 for a live quote.